Sound The Trumpet : Dubai Gets $10b from Abu Dhabi to Cover Debt

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“Dubai Gets $10b from Abu Dhabi to Cover Debt”
by AP
December 14th, 2009

DUBAI, United Arab Emirates – Dubai got a $10 billion lifeline from oil-rich Abu Dhabi to save one of its prized companies from imminent default Monday, calming fears for now about the city-state's shaky finances. Dubai's main stock market spiked more than 10 percent on the news.

Dubai World — a sprawling conglomerate with assets ranging from the oceanliner Queen Elizabeth 2 to luxury retailer Barney's New York — had been up against a Monday deadline to repay a pile of loans from its Nakheel property division. Some $4.1 billion of the emergency funds will be used to pay off those bills. The rest will go to shore up Dubai World itself.

Dubai officials' reluctance to fully stand behind Dubai World's $60 billion in debts had raised serious concerns about the emirate's creditworthiness, and the move by Abu Dhabi appeared aimed at quashing those worries before they undercut confidence in the United Arab Emirates as a whole. The two emirates share control of the UAE, a federation of seven semiautonomous city-states.

Authorities also softened their stance Monday, vowing that the city-state was committed to "transparency, good governance and market principles." Officials outlined a legal framework that promised to increase openness and protect creditors in future dealings with the conglomerate, offering lenders further reassurance in a country where formal bankruptcy proceedings are largely untested.

"We are here today to reassure investors, financial and trade creditors, employees and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices," Sheik Ahmed bin Saeed Al Maktoum, chairman of the Dubai supreme fiscal committee, said in a statement.

The bailout is the latest by Abu Dhabi. The emirate which controls the UAE's presidency has directly and indirectly provided Dubai with $25 billion over the past year, mostly by buying Dubai bonds. In all, Dubai owes more than $80 billion — roughly equal to its total economic output last year. The full extent of its liabilities is unknown, however, with some analysts putting the total at $100 billion or more.

The aid package is key for Dubai, the second-richest of the UAE's city-states but which has little of the oil wealth held by Abu Dhabi. Dubai's ruler is the UAE's vice president and prime minister.

Dubai created Dubai World — which has interests in seaports, real estate, tourism and retail — to diversify its economy and boost its international clout. Much of the growth was fueled by easy credit. As the bills came due, Dubai struggled to repay as its economy was battered by the global economic downturn.

Dubai said the rest of the funds provided by Abu Dhabi will be used to cover the conglomerate's interest expenses and general business needs through the end of April, and to pay bills owed to "existing trade creditors and contractors."

Bankers said the last-minute cash injection signaled a national approach to tackling Dubai's problems rather than leaving the struggling emirate to fend for itself.

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